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Cool It

Before you rush out to snap up industrial real estate, some caution may be warranted, warns Robert VonAncken, executive managing director of the Landauer Realty Group, which publishes a widely circulated annual real estate market forecast. VonAncken says he would “wait for at least three months” before leasing commercial property, given the current state of the economy.

“We would expect this year that there will be a modest decline in warehouse rents, a modest increase in vacancies, and a modest decline in the prices of warehouses, but the fact is that at this point we have not seen it yet,” VonAncken says. Still, the recent reduction in interest rates will offset some of the expected decreases in prices, he adds. “If interest rates go down, financing charges are less — it’s easier to buy, you get more leverage on a purchase of property, making a higher return. Therefore, typically, if nothing else changes, when interest rates go down, value goes up.”

According to the 2001 Landauer market forecast, warehouse/distribution is the mainstay of the industrial real estate market, favoring port cities and regional hubs. This year, the top ten cities for warehousing are Houston, Oakland, Denver, Dallas, Seattle, New York, Phoenix, Charlotte, Fort Worth, and San Francisco. Typical rents for standard warehouses are $3.84 per square foot in Houston, $3.90 in Phoenix, and $4.61 in Denver.

VonAncken adds that demand, especially in retail, is on the decline, but that warehouse prices will eventually come down. “Do you need as much warehousing as we have produced in the last five years? I don’t think so. Will the prices drop for warehouses? Probably, but you have to wait because it hasn’t happened yet.”